Investment firms inks $210M settlement on Madoff scheme

Ivy Asset Management LLC has inked a $210 million settlement with state and federal officials and lawyers representing investors who lost money in the Bernard Madoff Ponzi scheme, New York Attorney General Eric Schneiderman said Tuesday.

Ivy, a Bank of New York Mellon Corp. subsidiary, “deliberately concealed negative facts it uncovered in its due diligence of Madoff in order to keep earning millions of dollars in fees. As a result, its clients suffered massive and avoidable losses,” Schneiderman said.

Over a 10-year period, Schneiderman said, Ivy collected some $40 million in fees from clients for whom it was supposed to be determining the soundness of Madoff’s funds while failing to warn investors of serious flaws in Madoff’s methods. A discrepancy Madoff could not credibly explain between bond investments he claimed to have made and a lack of records showing any such investments, for example, was known to Ivy but never publicly reported.

“Ah Madoff,” an Ivy principal chided a subordinate in an email. “You forgot to mention one possibility, he’s a fraud.”

The settlement, which includes another $9 million from other parties also targeted in lawsuits filed by the attorney general, the U.S. Department of Labor and investors, will restore a good chunk of the $236 million Ivy clients lost.

Clients of the Mellon subsidiary that invested in Madoff funds include dozens of union pension funds and welfare plans. Affected Rochester-area unions include Rochester Laborers Local 435, Upstate New York Engineers, Service Employees International Union 1199 and SEIU Local 2000.

An undisclosed amount of the settlement will go to pay legal fees and expenses. Along with other Madoff investors, Ivy clients separately are due to see another portion of their losses repaid from the liquidation of the collapsed Madoff brokerage.

Securities Investor Protection Act trustee Irving Picard, a partner of Baker Hostetler LLP in New York City, has recovered roughly 60 percent of some $17 billion investors parked with Madoff, and is continuing efforts to recover money for the estate. The estate will be split—less expenses—among investors with valid claims. Still, none will recover anything close to the inflated amounts Madoff claimed to have earned in funds whose value he falsely put at $64 billion.